The hardest thing about trading is not the math, the method, or the stock picking. It is dealing with the emotions that arise with trading itself. From the stress of actually entering a trade, to the fear of losing the paper profits that you are holding in a winning trade, how you deal with those emotions will determine your success more than any one thing.
To manage your emotions first of all you must trade a system and method you truly believe will be a winner in the long term.
You must understand that every trade is not a winner and not blame yourself for equity draw downs if you are trading with discipline.
Do not bet your entire account on any one trade, in fact risking only 1% of your total capital on any one trade is the best thing you can do for your stress levels and risk of ruin odds.
With that in place here are some examples of emotional equations to better understand why you feel certain emotions strongly in your trading:
Despair = Losing Money – Trading Better
Do not despair look at your losses as part of doing business and as paying tuition fees to the markets.
Disappointment = Expectations – Reality (more…)
1) Trading is a probability game. You can’t be a perfectionist and expect to be a great trader. Your losses (that you hope will return to breakeven) will kill you.
2) Jumping in too soon or getting in too late. These mistakes come from traders not having a well-defined plan of how they will enter the market. This positions the trader as a reactive trader instead of a proactive trader, which increase the level of emotion the trader will feel in reacting to market movements. A written plan helps make a trader more systematic and objective, and reduces the risk that emotions will cause the trader to deviate from his plan.
3) Not taking profits on winners and letting winners turn to losers. Again this is a function of not having a properly thought-out plan. Entries are easy but exits are hard. You must have a plan for how you will exit the market, both on your winners and your losers. Then your job as a trader becomes to execute your plan precisely.
4) Great traders don’t place their own expectations on to the market’s behavior. Poor traders expect the market to give them something. When conditions change, a smart trader will recognize that, and take what the market gives.
5) Emotional pain comes from expectations not being realized. When you expect something, and it doesn’t deliver as expected, what occurs? Disappointment. By not having expectations of the market, you are not setting yourself up for this inner turmoil. Douglas states that the market doesn’t generate pain or pleasure inherently; the market only generates upticks and downticks. It is how we perceive and respond to these upticks and downticks that determine how we feel. This perception and feeling is a function of our beliefs. If you’re still feeling pain when taking a loss according to your plan, you are still experiencing a belief that your loss is somehow a negative reflection on you personally.
6) The Four Major Fears – fear of losing money, being wrong, missing out, leaving money on the table. All of these fears result from thinking you know what will happen next. Your trading plan must approach trading as a probabilities game, where you know in advance you will win some and lose some, but that the odds will be in your favor over time. If you approach trading thinking that you can’t take a loss, then take three losses in a row (which is to be expected in most trading methods), you will be emotionally devastated and will give up on your plan.
1. Think positively. Being optimistic helps in stressful situations. Do not let stress affect your mind and keep focusing on the positive side of your trading. What we think may result in decisions that can lead to better or worst situations. Thinking positively helps in making good decisions.
2. Change your response to stress. Being able to manage stress means developing strategies to deal with stress. Think of stress as a reaction rather than an event. It makes it easier to identify healthier ways to manage stress. Learn to Reframe Your Brain when adrenaline kicks in as the result of a win or a loss.
3. Task division. No man is an island. As a human being, we cannot survive being on our own. Having a trading mentor or trading buddy can provide both a sounding board and a support system.
4. Manage your time. Time is such that once you lost it, you can never get it back. Managing and limiting your trading time will help to keep your emotions and trading on track.
5. Learn your priorities. Our behavior towards ourselves and others may also contribute towards stress. Sometimes it is important to say no towards requests that you find it hard to meet. Keep in mind that by saying ‘yes’ to everything may please everyone but you may add on more stress and cause disappointment if the target is not meet. (more…)
“Long-term commitment to new learning and new philosophy is required of any management that seeks transformation. The timid and the fainthearted, and the people that expect quick results, are doomed to disappointment.” -W. Edwards Deming
Dr. Deming’s Ideas Dr. Deming’s famous 14 Points, originally presented in Out of the Crisis, serve as management guidelines. The points cultivate a fertile soil in which a more efficient workplace, higher profits, and increased productivity may grow.
Create and communicate to all employees a statement of the aims and purposes of the company.
Adapt to the new philosophy of the day; industries and economics are always changing.
Build quality into a product throughout production.
End the practice of awarding business on the basis of price tag alone; instead, try a long-term relationship based on established loyalty and trust.
Work to constantly improve quality and productivity.
Institute on-the-job training.
Teach and institute leadership to improve all job functions.
Drive out fear; create trust.
Strive to reduce intradepartmental conflicts.
Eliminate exhortations for the work force; instead, focus on the system and morale.
(a) Eliminate work standard quotas for production. Substitute leadership methods for improvement.
(b) Eliminate MBO. Avoid numerical goals. Alternatively, learn the capabilities of processes, and how to improve them.
Remove barriers that rob people of pride of workmanship
Educate with self-improvement programs.
Include everyone in the company to accomplish the transformation.
Successful trading requires the individual to have more than a certain amount of control over emotions and behaviors.
Emotions may include, but not be limited to, the following items:
1. Anger, anxiety, confusion, depression, disappointment, exhilaration, frustration, insecurity, passion, satisfaction, etc.
Behaviors may include, but not be limited to, the following items:
2. Arrogant, consistent, controlling, denial, following through, [im]patient, [ir]rational, letting go, perseverance, stubbornness, tenacity, etc.
Having control over these and other emotions and behaviors will allow for the trader to execute trades objectively, and more importantly, according to a strategic plan.
Sounds easy enough, does it not? “Execute trades objectively, and more importantly, according to a strategic plan.” Being that traders are human, it is not such an easy task to accomplish. It is not easy to be objective and diligent about sticking to a strategic plan day after day after day – especially with the constant volatility and erratic dynamics of the market tempting and enticing you at every turn to take actions that are NOT necessarily objective and NOT necessarily part of the strategic plan.
We all want certainty both in and outside the charts. Problem is certainty is nothing more than hope wrapped in expectation. Life is uncertain. A successful trade is uncertain. If certainty is what we want then certainty we will get. However, be prepared to meet certainty’s friends, doubt and disappointment. Doubt and disappointment are, shall we say, in “cahoots” with certainty. You can’t have one without the other. This is a blessing really that we all too often turn into a curse. A blessing because we have two new friends who can help keep us balanced, honest, and above all, human. A curse because we choose to ignore their advice when we should be embracing it. Embrace it you say? Yes. Because doubt and disappointment can lead to new discoveries and a deeper appreciation for what life has to offer. Maybe, just maybe, what we believe to be certain, you know, that which we wrap up in hope and expectation, is not so certain after all. Maybe, just maybe, our friends doubt and disappointment can lead us down a better path and a better life. Maybe, just maybe, doubt and disappointment can teach us a new understanding about the markets and the charts, wherein we pin so many of our hopes and expectations. (more…)
“Once you can clearly spot the rising of disappointment or excitement as Objects separate from yourself, you become less identified with those objects and they have less effect on you”!.
Anxiety is a future oriented emotion. You never will get anxious about events that have already occurred. Suppose we had been anxious about a trade but now it’s over with profit hit or stopped out. We no longer feel anxiety – only feel nothing, or satisfaction, or remorse, or disappointment, or sorrow, or some other past oriented emotion.
Anxiety communicate a message that there’s something in our future for which we need to prepare. This is a vital, a self-protection message. (more…)
What is Hope?
Hope is a feeling of expectation and desire for a certain thing to happen. It’s an individual’s desire to want or wish for a desired event to happen.
Hope may be the most dangerous of all human emotions when it comes to trading. Hope is what keeps a trader in a losing trade after it has hit the stop. Greed and hope are what often prevent a trader from taking profits on a winning trade. When a stock is going up, traders will often remain in the trade in the “hope” of recouping past losses. Every swing trader hopes that a losing trade will somehow become a winning trade, but stock markets are not a charity. This type of thinking is dangerous because the group (stock market) could not care less about what you hope for, or what is in your best interest. Rest assured, when your thinking slips into hope mode, the market will punish you by taking your money.
What is regret?
Regret is defined as a feeling of sadness or disappointment over something that has happened or been done, especially when it involves a loss or a missed opportunity. (more…)